Heinz profit off 5.7%, firm closing 3 plants

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Published: Nov 18, 2011 7:38 a.m. ET

Last Updated: Nov 18, 2011 8:22 a.m. ET

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H.J. Heinz Co.'s HNZ fiscal second-quarter earnings fell 5.7% as weaker North American consumer sales and lower volume damped international sales growth, prompting the food company to announce the closure of more plants.

Heinz, which makes its namesake ketchup, Ore-Ida frozen potatoes and Weight Watchers Smart Ones frozen meals, has experienced core revenue growth in recent quarters, led by emerging markets that are expected to account for 20% of sales this fiscal year. Heinz is also accelerating the introduction of entry-priced items in developed markets, especially the U.S., to appeal to consumers buffeted by economic uncertainty. But the company has projected a 7% rise in commodity costs for fiscal 2012, prompting it to raise prices on many products and to announce plant closures and layoffs.

Heinz said on Friday it plans to close another three factories due to the difficult environment in which it is operating. The closures will result in a 15 cents a share charge for the year.

For the quarter ended Oct. 26, Heinz reported a profit of $237 million, or 73 cents a share, down from $251.4 million, or 78 cents, a year earlier. Excluding charges for global productivity initiatives, earnings rose to 81 cents from 78 cents.

Sales jumped 8.3% to $2.83 billion and were up 1.5% on an organic basis, which typically excludes acquisitions, divestitures and currency changes. Heinz reported a 4.4% increase in net pricing, partially offset by a 2.9% volume decline.

Analysts polled by Thomson Reuters had most recently forecast earnings of 80 cents on revenue of $2.91 billion.

Gross margin fell to 34.3% from 37% as input costs jumped 13%.

Europe sales rose 5.8% and became the largest top-line contributor, as the North American consumer business saw its sales slip 1.1%. Asia-Pacific region sales grew 12%.

The company also backed its full-year earnings estimate.

Shares were down 0.6% at $52.50 premarket. The stock has risen 6.8% so far this year.

NEW YORK (MarketWatch) -- H.J. Heinz Co.'s
HNZ, -0.32%
fiscal second-quarter earnings fell 5.7% as weaker North American consumer sales and lower volume countered international sales growth, prompting the food company to announce the closure of more plants.

Heinz, which makes its namesake ketchup, Ore-Ida frozen potatoes and Weight Watchers Smart Ones frozen meals, has experienced core revenue growth in recent quarters, led by emerging markets. But with commodity costs projected to rise 7% in fiscal 2012, Heinz's bottom line has taken a hit, prompting it to raise prices on many products and to announce plant closures and layoffs.

The price increases averaging 4.4% helped offset Heinz's weaker-than-expected revenue to push earnings just above analyst expectations, though gross margin still fell to 34.3% from 37% from the higher costs.

Heinz expects emerging markets to account for 20% of sales this fiscal year and is accelerating the introduction of smaller, lower-priced items in developed markets, especially the U.S., to appeal to consumers buffeted by economic uncertainty.

The company has said its second quarter was faced with the same burden it has seen for months: weak economic conditions causing shoppers to search for discounts more and buy only what they need.

"Overall, we saw a combination of continued strength in emerging markets, the U.K. and much of Europe, and mixed results in other developed markets, where consumer confidence fell to its lowest level in 30 years," said Chief Executive William R. Johnson in a statement.

As a result, Heinz said on Friday it plans to close another three factories due to the difficult environment in which it is operating. The closures are expected to result in a per-share charge of 15 cents for the year. In the first quarter, it closed four plants.

Shares were recently down 1.4% at $52.09 premarket. Through Thursday's close, the stock has risen 6.8% so far this year.

For the quarter ended Oct. 26, Heinz reported a profit of $237 million, or 73 cents a share, down from $251.4 million, or 78 cents, a year earlier. Excluding charges for global productivity initiatives, earnings rose to 81 cents a share from 78 cents.

Heinz's total sales jumped 8.3% to $2.83 billion and were up 1.5% on an organic basis, which typically excludes acquisitions, divestitures and currency changes. However, total volume fell 2.9%.

Analysts polled by Thomson Reuters had most recently forecast earnings of 80 cents a share on revenue of $2.91 billion.

Ketchup saw 6.5% organic sales growth in the quarter on a constant-currency basis on price gains and volume growth in Europe, Latin America and Asia.

Europe sales rose 5.8% and became the largest top-line contributor, as the North American consumer business saw its sales slip 1.1%. Asia-Pacific region sales grew 12%.

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